On Watch at the Watershed
Rocks tossed from the Blue

HP's fourth quarter blasts profit records

HP announced fourth quarter and fiscal 2006 results this afternoon that knocked company share prices beyond $40, as investors crowded around a company whose earnings quadrupled from the same quarter in 2005.

HP weathered a big charge on its earnings in that 2005 quarter, but the results from the last 90 days stand on their own as a significant step upward. The company finished with $91.7 billion in revenues for fiscal 2006, another milestone broken. By many accounts, HP's revenues now lead the computer industry, so long as you include the $26 billion cranked out by the company's printer, ink, paper and camera business.

The quarterly profits came in at $1.7 billion for the 90 days when HP sells the hardest and discounts the deepest. HP came just shy of selling $25 billion in the period, a record for Hewlett-Packard. Revenue grew across the globe compared to the 2005 quarter, with revenue in the Americas up 7%, revenue in Europe, the Middle East and Africa (EMEA) up 3%, and Asia Pacific up 7%.

Analysts and commentators on the market were noting that the scandals HP endured in September didn't keep customers from choosing the company's products. In a Wall Street Journal report, however, analyst Brent Bracelin said HP is going to have to increase its profits organically, rather than by cutting costs. At a conference call this afternoon, HP CEO Mark Hurd said the company is "substantially completed" with its restructuring, corporate code language for "the layoffs are about over, for now."

As for the HP group developing and selling the HP 3000 replacement models and operating systems, Enterprise Storage and Servers saw its sales rise 4 percent over the same quarter of 2005. But the growth came from "industry-standard" (read: Windows) blade servers, not the HP-UX driven Integrity servers.

The ISS server business rose up 9 percent from 2005, and blades grew 38 percent. Meanwhile, the Business Critical Servers' sales declined 4 percent. Although the Integrity server business — the future of the HP-UX operating environment — increased 77 percent for the period, HP took a serious hit in PA-RISC and Alpha server sales. Nothing like telling the customers their architecture is being sunset to get them to stop purchasing it.

By the looks of the numbers, HP is not drawing in new business with its Integrity offerings as fast as it is turning PA-RISC customers into Integrity shops. On the bright side, the BCS profits for the quarter showed a $98 million increase.

HP expects more sunny days in the quarter to come. It believes its profits for Q1 of 2007 will be in the range of about $20 million. Profits will flow from the PC business where HP battles Dell. HP's notebook revenue climbed 24 percent for Q4 of 2006, while desktop sales were flat. More and more customers are choosing notebooks as their desktop systems. Meanwhile, Dell delayed its quarterly results today because HP's chief PC competitor is being investigated by the SEC.

For readers who eat this stuff up, a replay of the conference call from the this afternoon is up on the HP corporate Web site. If you have a Windows system, you can listen to the call at a page driven by Windows Media Player or Real Player. The call is one hour, but it's indexed with 26 minutes of HP speaking and 31 minutes of questions from the business press.